A.P. Moller-Maersk Announces Job Cuts and Earnings Adjustment

By Dominic Chopping

A.P. Moller-Maersk, the Danish shipping giant, has revealed plans to cut over 10,000 jobs as it intensifies efforts to reduce costs amidst an industry struggling with weak demand, lower freight rates, and rising inflationary pressure.

The company has revised its earnings outlook for the full year, now expecting to report results at the lower end of its targeted ranges.

According to Chief Executive Vincent Clerc, the past few months have brought about a situation of overcapacity in most regions, causing prices to decline sharply and no notable increase in ship recycling or idling. In light of the challenging times ahead, A.P. Moller-Maersk has taken immediate action by implementing various cost and cash containment measures to safeguard its financial performance.

Last year, the company enjoyed exceptional profits due to a surge in demand for goods driven by the pandemic, as well as supply-chain bottlenecks and port congestion. However, as the market stabilizes this year, freight rates have returned to levels seen in 2019.

Freight rates have dropped by 58% compared to the previous year, while volumes have grown by 5%. As a result, revenue in A.P. Moller-Maersk's primary shipping business has fallen by 56% to $7.9 billion.

Maersk's Plans to Navigate Volatile Market

Maersk, a global shipping company, is preparing for a volatile market environment as it faces challenges from increasing industry capacity. To address this, the company is intensifying its cost-cutting efforts and expanding its restructuring program. One of the key measures Maersk is taking is reducing its workforce to below 100,000 employees, down from 110,000 at the beginning of the year. This strategic move is projected to generate savings of $600 million in the coming year. However, the increased restructuring costs associated with these changes will amount to $350 million, higher than the initial estimate of $150 million announced earlier in the year.

In addition to workforce changes, Maersk is also reevaluating its capital expenditure for this year and next. The company plans to review its share buyback program as well in light of the uncertain market ahead.

Despite these adjustments, Maersk maintains its earnings outlook for the full year. The company has witnessed improvements in results due to both increased volumes and cost reductions. Consequently, Maersk now anticipates a smaller decline in global container volumes compared to previous estimates. The revised projection suggests a decline between 2% and 0.5%, whereas earlier forecasts predicted declines of 1% to 4%.

Nevertheless, Maersk's financial performance for the most recent quarter was less than stellar. Net profit plummeted to $521 million from $8.88 billion during the same period last year. Revenue also experienced a significant downturn, falling by 47% to $12.13 billion. FactSet consensus had earlier forecasted net profit of $334 million on revenue of $12.66 billion.

In a dynamic market landscape, Maersk is proactively implementing measures to navigate challenges and optimize its operations. The company's focused approach aims to ensure sustained profitability while addressing evolving industry dynamics.

Maersk's Full-Year Earnings Outlook

Maersk, a prominent global shipping company, has provided its full-year earnings outlook. The company expects the following financial results:

• Underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected to be in the range of $9.5 billion to $11 billion.
• Underlying earnings before interest and tax (EBIT) are anticipated to be in the range of $3.5 billion to $5 billion.

As per their guidance, Maersk is targeting the lower end of the projected ranges.

This update showcases Maersk's expectations for its financial performance in the coming year, offering valuable insights into their estimated profitability.